Millionaire Interview 334

Here’s our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.

If you’d like to be considered for an interview, drop me a note and we can chat about specifics.

This interview took place in May.

My questions are in bold italics and their responses follow in black.

Let’s get started…

OVERVIEW

How old are you (and spouse if applicable, plus how long you’ve been married)?

My wife and I are 37 years old.

We have been married for 11 years (together for 19 years).

We met freshman year of college as biology lab partners.

Do you have kids/family (if so, how old are they)?

We have three children: a 6 year old, 3 year old, and a 1 year old.

What area of the country do you live in (and urban or rural)?

We live in the northeast, in the suburbs of a major city.

What is your current net worth?

Currently 2.1 million (though it was 2.5 million when I started working on this interview.

The market giveth, and the market taketh away).

What are the main assets that make up your net worth (stocks, real estate, business, home, retirement accounts, etc.) and any debt that offsets part of these?

Assets

• ~270k in wife’s 401k/403b
• ~205k in children’s 529s
• ~78k in my Roth IRA
• ~67k in wife’s Roth IRA
• ~305k in brokerage account
• ~470k in my Solo Traditional 401k
• ~64k in my Solo Roth 401k
• ~883k in home equity
• ~60k Cash

Debts

• ~333k in Mortgage
• ~16k credit card debt (revolving, always paid off monthly)

However, this month I tried Plan It from American Express. It allowed me to combine charges to pay it off over time. There is no cost, and no fee. I am hoping this will assist me with cash flow better throughout the year.

We also did some fairly large home improvement projects (mini split unit for the basement, interior painting, new exterior door) that we charged. It does seem dangerously close though to carrying credit card debt, so I will have to see how this plays out in the future.

EARN

What is your job?

I am an early-mid career physician, working as a 1099 independent contractor.

My wife is also an early-mid career physician, working as a W2 hospital employee.

What is your annual income?

It has varied over time. I also find that net income (after taxes) is a much more important number.

2020 was the final year that my wife and I both worked full-time, and will probably be our highest income year ever. We made $567,000 pretax, paid $142,409 in Federal tax, and $33,061 in State tax, for a net $391,530.

In 2021, my wife was on maternity leave, and I began to cut my hours back. My wife also worked 5 months part time when she ultimately went back. We made $420,904 pretax, paid $84,169 in Federal tax, and $22,061 in State tax, for a net $314,674.

I find this exercise helpful in just how progressive our income tax is on earned income. We “made” almost 150k more in 2020 as compared to 2021, yet we only got to keep $76,856 of it, or essentially half.

Another way of looking at this for me is that for every additional shift I work, I only keep half of my pay. So rather than making $200 an hour, I am really only making $100 an hour.

Knowing this makes it much more palatable to cut back at work.

For 2022, we are on track to make $375,000, which is more than enough to fund our lifestyle, max out our pre tax saving space, and still contribute some to brokerage account/mortgage prepayments.

Tell us about your income performance over time. What was the starting salary of your first job, how did it grow from there (and what you did to make it grow), and where are you now?

I started working at 14 as a lifeguard making ~$10/hour.

I then moved on to working in a restaurant as a food runner/busboy making ~$15/hour.

In college, I did tech support, for ~$15/hour, ran sound and lights for a few hundred dollars/gig, and was a lab tech making $15/hour.

Throughout college, I made a few thousand dollars/year doing the above 3 jobs and used this as my spending money.

In medical school I did not work, then 4 years as a resident making an average of 60k a year.

As an attending physician, I make ~$200/hr, with occasional bonuses over the year of 5k-50k. Yearly this works out to ~350k.

What tips do you have for others who want to grow their career-related income?

I am not sure I have any great tips for those of you outside of medicine other than what has been said before. I have never worked in the corporate world. Show up on time with a positive attitude and you are already better than 90% of your competitors out there.

In terms of medicine I have lots of tips. Choose a high paying specialty, minimize student loans, maximize student loan repayment strategies, use geographic arbitrage to increase your income, and consider locums assignments.

What’s your work-life balance look like?

Currently, it is outstanding. My wife works half time, which is seven 12-hour shifts per month. She has the option of picking up extra shifts as moonlighting.

I currently work ~100 hours a month, with the ability to increase or decrease as needed. I used to work 3-4 nights per month, which as I’ve gotten older and had kids has become so much harder. Now I simply try to give them up to someone else who wants them, and I almost never have to work more than 1 night a month.

Life is busy with three young kids. It is honestly easier for me to be at work. As the kids get older, it has gotten easier to be at home.

Does anyone have any tips or tricks on how to spend full days with little ones and not go crazy? There is only so much “playing” I can do, and I can only look at my phone for so long.

Do you have any sources of income besides your career? If so, can you list them, give us a feel for how much you earn with each, and offer some insight into how you developed them?

None, other than minimal dividends, and interest, all of which is reinvested.

SAVE

What is your annual spending?

In 2021, Personal Capital says we spent $215k, after taxes.

In 2020, Personal Capital says we spent $280k, after taxes.

I was honestly really surprised to see how much we spent. I probably need to reevaluate my net worth goals, as I thought I was a lot closer to financial independence than we are with our current spending.

What are the main categories (expenses) this spending breaks into?

This data is from Personal Capital. I used to be really assiduous about making sure it categorized things correctly, but no longer do so, so take all of these numbers with a grain of salt.

• Mortgage $67K (includes insurance and property taxes, which are substantial at ~16k)
• New Car $36k
• Childcare $25K
• Home improvement $14K
• Healthcare $8K
• Everything else $73k. This includes groceries, eating out, travel, amazon, housecleaner, landscaper, and anything that doesn’t fit into the above categories.

Do you have a budget? If so, how do you implement it?

Not anymore. When we were residents, I did it, and we stuck to it fairly closely.

Now we use “backward budgeting.” Essentially, I decide how much I want to save between pretax accounts, back door Roth contributions, 529 accounts, brokerage accounts, and mortgage prepayments. As long as I meet those goals, I feel free to spend the rest.

Whatever doesn’t get spent, gets placed either into the brokerage accounts or mortgage prepayments.

What percentage of your gross income do you save and how has that changed over time?

In 2020, we saved $239k, and grossed $567,000, for a savings rate of 42%.

In 2021, we saved $191k and grossed $421,000, for a savings rate of 45%.

Neither of these numbers account for ~12k in mortgage prepayments that get paid as part of our regular automatic monthly payment, nor do they account for my wife’s pretax contributions from her paycheck, which is ~20k.

For 2022 my arbitrary savings goal is $200,800:

• $12,000 in Backdoor Roth Contributions.
• $20,500 in wife’s 401k
• $7,300 in HSA
• $61,000 in my Solo 401k (assuming I make enough to max this out; a mistake I won’t make again as I discuss below)
• $50,000 in the brokerage account
• $50,000 in mortgage prepayments (outside the 1k prepayments per month that is part of the regular automatic monthly payment)

We have already saved 56K, or about ⅓ of our goal. It seems as though it will be feasible to achieve this. The list above is in the order of importance, with the final two items always being equally important. If we come up short we will simply contribute less to the mortgage and the brokerage account.

I also question the wisdom of contributing extra to the mortgage. I know mathematically it makes more sense to contribute any extra money to the brokerage account. However, the benefit of a paid off house has always been very enticing.

I always made peace with this duality by splitting any extra money between the mortgage and the brokerage account. Now with inflation raging and our current rate being only 2.25% it makes even less sense to contribute extra to the mortgage. I probably will rather than split extra money between the mortgage and the brokerage account hit my 50k brokerage goal first.

After I hit my 50k brokerage goal, if I still have any extra money I will decide whether to contribute this to the mortgage, contribute this to the brokerage account, or to split the difference.

What’s your best tip for saving (accumulating) money?

Decide what you want to save, and make that happen. I tend to have pretty strong will power so this is how I do it.

Additionally, I am paid as a 1099 employee into my business checking account once a month, so after I get paid, I divvy this money up between mortgage, 401k, savings account for estimated taxes, and then the brokerage account. Having to manually move money from my business account makes it easy to save as I never spend directly from this account, so it would have to be a really conscious decision to spend this money.

We tend to use my wife’s paycheck to fund our day to day expenses. Her paycheck is deposited into our joint checking account, so we feel free to spend whatever we want from it. All of her contributions for HSA, 401k, FSA, dependent care FSA, etc. all come out pretax, so we never see them. Having her contributions come directly out of her paycheck makes it easy to save.

What’s your best tip for spending less money?

Eliminate services and spending and see if you miss it.

For example, when we eliminated cable we did not preemptively think if we would be okay without it. We got rid of it, then we saw if we really missed it. People do a bad job of predicting what actually makes them happy, so it is hard to proactively decide if you should keep or eliminate something.

What is your favorite thing to spend money on/your secret splurge?

Undoubtedly outsourcing tasks I do not like.

We pay for a house cleaner. This used to be biweekly. Now it is weekly, with odd weeks being full house cleaning, and even weeks being only kitchen, bathrooms, and family room.

We have a landscaper. We have a nanny. When my wife and I worked full time we could not have done so without a nanny, as our nanny works nights, weekends, holidays, etc. However, now that we have cut back at work, we could potentially manipulate our schedules so that one of us could always provide child care. This though would give us even less free time then we have now.

Now, when one of us is working, we have our nanny come to help the other parent get the 6 year old on the bus, then watch the 2 younger ones to give us free time to work out, run errands, or simply relax.

I have also started paying people to do maintenance/projects around the house. I used to do everything myself, but with three kids this has become almost impossible. I also now try to take into context the value of my time before I start a project.

For example, I wanted a new garage door opener. I am 100% sure that I could have installed this myself. However, Home Depot did it for $97. This would have taken me hours, if I could find the time to do it with 3 kids at home. I would have had to pay my nanny to watch them so I could do it.

If I could get it done in 3 hours (?maybe) I would have had to pay my nanny $75 to watch the kids. Therefore, I am much better working a single extra hour, at about $100 post-tax, which gives me 2 free hours, and still lets me come out ahead. That $97 was money well spent.

However, this may be a slippery slope as it becomes easy to justify something because you can work an extra hour to make up for it. You also then actually need to work the time.

INVEST

What is your investment philosophy/plan?

Very simple and straightforward. 90% equities, 10% bonds. Of this, 75% domestic and 25% international. For myself, in the 401k this is accomplished all through vanguard mutual funds. My wife uses a target date fund for her retirement accounts that essentially mirrors this.

For our children’s 529 plans, we decided to superfund them and put $50k in each of them when the kids were born. The hope is this will be about ~$250k at age 18 when they start school. The 529 plans are all based in Utah, as our state offers no tax break, and are a static allocation of 100% equities, of which 30% is international, with no plans to change.

What has been your best investment?

No great investments, as I have always had the same boring index strategy, so I guess it would be VTSAX.

What has been your worst investment?

Again, never bought individual stocks, or invested in real estate, but so far it has been VTABX, the Vanguard Total International Bond Index Fund. I have held this since I started investing in 2015, and it has always lost money.

It makes me question whether or not it is necessary to hold international bonds. Logically, if I decide to hold international stocks, at 25%, and decide to hold 10% bonds, why wouldn’t I hold the same percent (25% of 10%) in international bonds? It is only 2.5% of my portfolio, so has never been a relatively large value, but as the portfolio grows the absolute value has increased. Any thoughts on holding international bonds?

What’s been your overall return?

Prior to this interview I had never looked, nor do I have an easy way to track this across our different accounts between my wife and I.

However, most of our money is with Vanguard, and my wife’s 401ks, etc. pretty much mimic what we have with Vanguard.

Vanguard says 9.9%, which seems about right.

How often do you monitor/review your portfolio?

At least daily.

Having access to Personal Capital on my phone makes it much too easy.

NET WORTH

How did you accumulate your net worth?

I did nothing particularly remarkable. I went to college, paid for by my parents, from 18-22, then med school from 22-26 paid by loans, then residency from 26-30, where I made my minimal ~$60k/ year. After this, I started working as an attending physician making ~$300k/year.

My wife had no student loans, as she had a full tuition scholarship for college, and my in-laws paid for medical school for her. She also made ~$60k/year as a resident for 4 years, and then initially made $180k/year as an attending, which increased after a few years to $210k/year, and then ultimately to ~$250k/year.

I made no real financial mistakes. I never had credit card debt. I met my spouse very early on, and she never had any debt. All of her schooling was paid with scholarships and by her parents. We never lived in particularly lavish places. We bought a townhouse during residency. We initially had a 5 year arm, interest only mortgage, and used the savings from that to pay off my student loans, as the interest rate was much higher there than on the house.

We got married when we were both in residency and her parents paid for the wedding, so we were able to use some of our wedding gifts to pay down my loans. When my wife finished residency a year before me, she moonlighted some shifts and made some extra money. We did not change our spending.

When I became an attending, we refinanced the mortgage to a traditional 5 year arm, and began paying it off. We had our first child there, and moved to our “doctor house” right before our second child was born, as we would have been tight on space in a 2 bedroom townhouse for 4 people.

We bought a reasonable house ~700k, which was slightly more than 1x our combined yearly salary. When we sold our townhouse, we took some of the profit/equity from that and paid off the remainder of my loans, and put the rest into the new house. We got a 15 year mortgage, and have refinanced multiple times, down to 2.25% currently.

We have always maxed out pretax space, and saved extra in brokerage accounts. Slow and steady wins the race, and by 6 years and 7 years after residency for my wife and myself respectively, we are multi-millionaires.

What would you say is your greatest strength in the ESI wealth-building model (Earn, Save or Invest) and why would you say it’s tops?

Probably invest, though more because I would say the other two are weaknesses.

We spend a lot of money, so definitely not saving.

In terms of earning, I could easily earn more than double my income by working a lot more, and working at a higher paying location, but I like my current easy gig that is no more than 15 minutes from my house.

In terms of investing I have always had a reasonable, low cost investing plan. I have always maxed out my pretax benefits. I do not panic/sell when the market crashes.

What road bumps did you face along the way to becoming a millionaire and how did you handle them?

None really. I feel as though I have had a very blessed life. I have had no major tragedies in my life. I have gone straight through with education and into a job that I mostly enjoy. It has enabled a great life for myself and my family.

With that said, COVID has been crushing. It has greatly impacted my enjoyment of medicine, and has turned me into someone who simply punches the clock. I used to have career aspirations, but no longer do. It does not seem as though this will change anytime in the future.

However, due to my decisions earlier in my career, I have been able to cut back a lot at work, which has made me happier.

What are you currently doing to maintain/grow your net worth?

Nothing really. I continue to maximize my solo 401k, and my wife her pre-tax space.

We recently switched to a high deductible insurance plan to save some more money pretax.

Even with cutting back at work we are able to maximize these accounts and still save some money in our brokerage accounts.

Do you have a target net worth you are trying to attain?

Not really. I had always said 2.5M would be enough. We are essentially there, depending on market fluctuations.

With our current work schedules, I can see us continuing in our roles for the next 20 or so years.

I have already made more money than I ever imagined I would. I never thought I would be a millionaire.

Additionally, I am expecting us to receive large, multimillion dollar inheritances when our parents die. I can see it being very feasible between continuing to work, and inheritances that we could have estate tax issues when we die.

How old were you when you made your first million and have you had any significant behavior shifts since then?

In February 2019. No shifts, and continued to do what we were doing.

In June 2021, we hit a net worth of 2 million. We made huge shifts at this point. We both went down to essentially 50% time. This, however, did not lead to a 50% pay cut due to the progressive nature of taxes, as well as our ability to now qualify for the Qualified Business Income deduction.

This also was around the same time my wife was planning on returning to work after having had our third baby. I do not think we would have been able to keep working the way we were with 3 kids under 6, and keep our marriage intact. More than a net worth number, I think this is what drove both of us to cut back.

What money mistakes have you made along the way that others can learn from?

I have a very straightforward investing plan, never wavered, and never really made a mistake.

The biggest financial mistake I ever made was regarding my solo 401k. When I finished residency in July 2015 I was excited to start investing in my 401k, and planned to contribute the maximum to it. The maximum in 2015 was 51k. I however did not understand that the employer contribution was limited to ~25% of net business income and I over contributed.

Vanguard was who was managing my solo 401k at the time. It was a nightmare to fix this. They were unable to understand the issue, nor do I get good advice from them. I spent hours on the phone. Ultimately, I filled out a 5330 form, and paid an excise tax, which was 10% of the overcontribution, which was ~$500. In 2016 I contributed the maximum amount, minus the overage form 2015.

For those of you who make the same mistake, the better, and cheaper option is to have your plan administrator reclassify the excess contributions as part of next year’s contribution, and avoid the whole mess of the 5330.

Next, the better advice is simply not to over-contribute, and if you think you are going to be close to contributing the max, hold back some of your employer contribution until you see your year end numbers.

Lastly, I am not sure I would recommend Vanguard for setting up a solo 401k. I might choose a company who specializes in solo 401ks to set it up and run this. Obviously, this would be significantly more costly, as it is essentially free at Vanguard, but I would be able to set the plan up exactly as I want, and I would expect to get much better customer service than I have from Vanguard. I would also not have to fill out annual 5500 forms, though these are simple to do.

What advice do you have for ESI Money readers on how to become wealthy?

To me being wealthy is not having to worry about money.

It’s simple, but not easy to be wealthy. Spend less than you earn, and you will become wealthy. The larger this gap, the quicker you will become wealthy. Take the excess, invest it in something reasonable, and soon you will never have to worry about money again.

Manage your assets yourself. No one cares more about your money than you.

Keep investing expenses as low as possible. It is easy to do this by eliminating the financial advisor, and choosing low cost mutual funds.

You should also maximize tax breaks, especially if you are a high earner. For most people this is making maximum contributions to pre tax retirement accounts. You could consider tax loss harvesting. For those with 1099 income, maximize the Qualified Business Income deduction.

FUTURE

What are your plans for the future regarding lifestyle?

I think we have already reached our future plan. We can continue to work like this indefinitely, and still spend time with our kids, at home, and with each other.

As COVID recedes, I would love to travel again. However, not currently traveling is probably more a result of 3 young kids than anything else.

What are your retirement plans?

I really have no idea. Looking for some guidance on this.

With a few more years of work (and the stock market picking back up) I will soon have more money than I could ever spend. I am not sure what the impetus would be for me to stop working, because as I said I feel as though I am already retired with working only 100 hours a month. However, I am sure when (not if) I am sued I will be done with medicine. I will then need to fill my time (see my answer below).

Financially, I have no concerns; I plan to spend down my taxable account, hopefully make it to 59.5, then tap 401ks. If this doesn’t happen, and we exhaust our brokerage account before 59.5, we would simply set up substantially equal periodic payments (SEPP) from our 401ks. People spend an inordinate amount of time worrying about not being able to access money in 401ks. Hopefully I will be able to leave Roth accounts alone forever.

Are there any issues in retirement that concern you? If so, how are you planning to address them?

Healthcare is the obvious concern. Hopefully, keep income low enough to qualify for subsidies and buy insurance on the exchange.

Also, I am concerned with how much of my identity is tied up in being a physician. I have trained for a long time to be where I am, and I am not sure how I would be impacted by giving this up. I know my wife has more of her identity tied up with this than I do, and she worries about this more than I do.

Finally, I worry about filling my time. Currently, between work, children, and taking care of our home, I have minimal free time. As time progresses and the children leave the nest, I am going to have countless hours to fill, and I am not sure how I plan to do that.

MISCELLANEOUS

How did you learn about finances and at what age did it “click”?

I kind of fell into it. When I was a third year resident, life was becoming miserable, and I wanted out of medicine as soon as possible.

I found Mr. Money Mustache, and figured out the basic math of early retirement. I then found the White Coat Investor, have followed his suggestions, and have never looked back since.

Luckily after finishing my third year of residency, I was able to find a lot more enjoyment in medicine.

Who inspired you to excel in life? Who are your heroes?

Undoubtedly my wife. I had always wanted to be a doctor, but had no idea how to make that happen. I got into college by the skin of my teeth. She took me under her wing, and made me who I am today.

I don’t have any heroes.

Do you have any favorite money books you like/recommend? If so, can you share with us your top three and why you like them?

I read a ton, though never “money books.”

All my financial education came from blogs, most especially the White Coat Investor.

Do you give to charity? Why or why not? If you do, what percent of time/money do you give?

We do, but not much, probably only ~2% of our gross income.

This is something we probably should increase, but I have never felt much pleasure from donating money.

We will maybe look into a Donor Advisor Fund to do this anonymously, and avoid the hassle of charities calling us directly, as well as be able to easily donate appreciated shares from the taxable account.

My wife and I do volunteer some of our time. I lecture a few times a year at my former residency on finance topics. My wife volunteers her time mentoring residents, medical students, and premedical students. She sits on multiple panels both virtually and in person regarding these topics.

We also volunteer at our daughters’ school. We both seem to get more out of these kinds of activities than we do donating money.

Do you plan to leave an inheritance for your heirs (how do you plan to distribute your wealth at your death)? What are your reasons behind this plan?

We do have a will and testamentary trust set up. We should probably look into setting up a revocable living trust, but haven’t gotten around to doing it. We also have not updated any of our wills since our first child.

We currently have everything going to our children, divided into 3rds, when we die. This would be managed as a single trust until the oldest turns 18, then divided into 3 separate trusts, one for each child. The trustee would continue to manage this until the child reaches the age of 25, when half the balance would be distributed to the child, and the remaining half distributed when the child reaches 35, at which point the trust would terminate.

The idea obviously is that our children would not handle large sums of money when they are presumably immature. Additionally, if they made a mistake with the first distribution they would get another chance.

Obviously, the bigger concern with children is who would care for them if we died. We have decided my wife’s brother would care for them, and my sister would handle the money, to hopefully have some checks and balances. It is our hope as well that this arrangement will keep our family together, when we are no longer around to do so.

However, as our assets grow larger I am not sure how much money I would want to leave to the children. I do not have a charity or other cause that I am passionate about though, so I am not sure what else to do with this money. Like I spoke about before, we have the possibility of having an estate issue, assuming we live full lives, and would have to make decisions about how to minimize estate taxes.

Does anyone have any thoughts, or other ways they have managed their estates in regards to children, or estate tax issues?